Lumen Receives over $8 Billion in AI Investment from Tech Giants
Reasons for Lumen’s Investment
Lumen Technologies reports that to date, the company has signed private custom fiber (PCF) agreements worth over $8 billion with companies such as Microsoft, Amazon, Google, and Meta. Company executives indicate that there will be more companies going public.
Lumen CEO Kate Johnson said during the company’s earnings conference call, “Large tech companies chose Lumen because of our diverse geographic locations. And pipeline based intercity and intra city fiber optic networks were built for this purpose. No other telecom company with fiber optic networks has done the same. We see it as Lumen’s future material differentiation and revenue opportunity.”
Kate Johnson stated that Lumen has established a dedicated operations team to build such a network for artificial intelligence services. With the application of artificial intelligence in large enterprises, Lumen may see additional demand for its PCF products.
She said, “These companies chose Lumen because they know we connect all three public clouds. Also, they see that we are investing in future network needs. And that is different from any other company in the network market.”
Kate Johnson added that Lumen is “building the backbone of the artificial intelligence economy”.
Some analysts acknowledge that Lumen has a unique advantage in transmitting artificial intelligence traffic nationwide. Because it has a fiber optic network connecting many major cities in the United States.
MoffettNathanson’s financial analyst wrote in a report to investors: “The previously constructed Level 3 metropolitan backup pipeline. So Lumen clearly has a competitive advantage on existing long haul routes. After Lumen announced its quarterly earnings, from a cost and time perspective, competitors (and customers) were unable to compete with it.”
Challenges and opportunities
Nevertheless, Lumen’s financial condition remains poor. In the third quarter of 2024, the company’s adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) reached $899 million. And that is lower than the $1.049 billion in the same period last year.
CEO Johnson explained, “Our financial performance still reflects the long-term headwinds of our traditional revenue. But our team sees a clear path to turning the company around… All of this will take time to execute, and time to reflect on our finances. But this path is real.”
One of Lumen’s opportunities lies in its efforts to sell its “mass market” business. For several months, Lumen’s management has been discussing the possibility of selling the company’s “mass market” division, possibly through a sale, joint venture, or other transaction.
As of the end of the third quarter of 2024, Lumen’s mass market business had a total of 2.6 million residential and small business customers. About 1 million users use fiber optic connections among them; The rest are on the operator’s copper cable network. Lumen has been expanding its fiber optic network at a rate of approximately 500000 locations per year.
But how much is Lumen’s mass market business worth? The recently proposed fiber optic deals – BCE’s acquisition of Ziply and Verizon’s acquisition of Frontier Communications – have helped analysts price Lumen’s business.
According to financial analysts at New Street Research, the value of Lumen’s mass market business could be between $14 billion and $20 billion.
But analysts at MoffettNathanson say that selling Lumen’s mass market business is complex. They wrote, “Transactions can simplify business, reduce capital expenditures related to fiber to the home, and help improve the balance sheet. However, this traditional enterprise has low fiber coverage, serious over construction problems, and may not have the favorable bidding dynamics of Frontier, which raises questions about its valuation.”